Airlines Inch Toward Securing Aid Needed for Lengthy Slowdown

(Bloomberg) -- Airlines made progress toward bolstering their finances over the weekend, with Deutsche Lufthansa AG nearing a deal for state aid and Norwegian Air Shuttle ASA winning bondholders over to a debt-to-equity swap.

Lufthansa expects to finalize talks with the German government on an aid package “soon,” the company said in a letter to employees seen by Bloomberg. The governments of Germany, Switzerland, Austria and Belgium have together been looking at a rescue plan that could top 10 billion euros ($11 billion) in total.

Norwegian Air's agreement with bondholders, reached after some initially failed to support the plan, takes the airline one step closer to securing state loan guarantees needed to keep the struggling carrier afloat.

Such loan guarantees are “crucial to getting through the crisis,” Norwegian Air Chief Executive Officer Jacob Schram said in a statement on Sunday, ahead of a shareholder meeting Monday to vote on the overall proposal.

Governments have committed more than $85 billion to prop up airlines after the coronavirus pandemic wiped out travel demand and grounded jet fleets.

Read: An $85 Billion Airline Rescue May Only Prolong the Pain

Here's a roundup of developments over the weekend:

Deutsche Lufthansa

The German group faces a substantial loss in revenue due to the worldwide grounding of most of its fleet. It owns so-called flag carriers in four countries after more than a decade of acquisitions, and is seeking their help with cash in danger of running low.

In the letter, CEO Carsten Spohr told employees that negotiations are an intense and constructive. Bloomberg News reported Friday that Germany's government had settled on a unified position that foresees the state owning at least 25% of the airline and taking a seat on the board, with the possibility of a silent participation for some of the holding.

Lufthansa's Swiss unit will need to slash nearly 20% of costs, the director of Switzerland's Federal Finances Administration told newspaper SonntagsZeitung in an interview. The reduction is part of a business plan worked out when the airline secured 1.275 billion francs ($1.3 billion) in loan guarantees from the Swiss government.

Lufthansa Expects to Reach Deal ‘Soon' on German Government Aid

Norwegian Air

The debt-for-equity exchange is part of a plan to meet terms set by Norway to give the airline access to a 3 billion-kroner ($290 million) package of loan guarantees. In earlier talks, Norwegian Air had failed to get the required two-thirds majority support from one of its four bondholder groups.

CEO Schram said his main priority now is to reach an agreement with the leasing companies that provide their planes. Norwegian has total debt of about $7.8 billion. Under the conversion plan, lessors would control the largest stake in Norwegian, with existing shareholders retaining about a 5% stake.

Korean Air

Korean Air Lines Co. will hold a board meeting this month to discuss a rights offering as large as one trillion won ($819 million) as part of a restructuring plan, Yonhap News reported. The airline will also consider a potential sale of assets including land to raise an additional 500 billion won, Yonhap said, citing unidentified industry sources.

Icelandair

Iceland may look at taking a stake in Icelandair Group hf if the government injects funds into the airline, Prime Minister Katrin Jakobsdottir told local radio on Sunday. A possible loan is contingent on financial restructuring by the carrier, which is working toward a stock offering this month.